Commodity market is notorious for being fragile and insecure, and the latest Brexit Disaster reasserts that belief. Brent Crude Oil prices dropped as much as 6.6 percent to $47.54 a barrel. The prices of base metal plummeted but surprisingly Gold prices rose to a 2-year high. Dollar strengthened but it wrecked havoc on the value of Pound as it dropped to its lowest value since 1985 to a GBP-USD exchange rate of $1.32.
About $2 Trillions was wiped off from the global equity within 24 hours of the shock. The markets are still extremely volatile. However, as the cloud of uncertainty is fading away, markets SEEM to recover from the massive shock.
Uncertainty is the part and parcel of Commodity market. One needs to trade off between risks and profits. With a rise in cases of Identity theft it is always better to trade from trusted sources. In this article you will learn some basic rules of Commodity Trading which can be applied to trade better and to stay on the Winning side.
Rules to uphold while trading in Commodity Markets
- Past Performance is NOT Indicative of Future Results– Let’s Start off with THE GOLDEN RULE of Trading- A commodity can NEVER assure you positive results based on the previous exemplary outcomes.
- A STRICT Trading Plan– You must ALWAYS adhere to a set of rules and personal ethics while trading. Overwhelmed by emotions or excitement do not make decisions opposed to your scheme. It can incur huge losses.
- When in doubt, Don’t– When one is in doubt he is bound to get influenced by a number of external and often unimportant factors. In resulting confusion the decisions are often unwise and can result in severe losses.
- Your plan must ensure profit even when you are right 40% times– Trading cannot be a full proof technique. Sooner or later you are bound to trade a commodity, which you shouldn’t have. Your approach must be able to show profits even when you are right less than half the time.
- Control your Loss– The most fundamental mistake traders do is put a ceiling on the profit and no limit on their losses. If you make a trade with instinct, it can be judged almost instantly by reviewing results. If you end up showing loss, remove yourself from the situation at once to prevent subsequent losses.
- Let your profits ride– It is an offshoot of the previous rule. When Market shows you that your speculative decision was correct, hold on to that commodity until the market turns around. DO NOT trade the commodity until it starts showing loss. A hasty decision can result in a loss of a golden opportunity.
- Winning and losing goes hand in hand– It is a natural part of any business model. One cannot and should not expect to win and make profit unless he is ready to bear losses.
- Make informed decisions and justifiable risks– A trader must be updated with the market trends. And with knowledge comes ability. An informed trader is more likely to make better and profitable trades.
- Don’t deal with extremes– Do not buy when the commodity is priced too high and do not sell when it is rated extremely low. Be patient and wait for a reversed progression.
- Do not fall for a Margin call– When your broker gives you a “margin call”, you must realise that you have stuck on to your commodity for too long. Get out of the market before the disaster sets in.
- NEVER cling on to losses– It is very painful to face loss and even more difficult to accept it. A trader must never get emotional and tie himself to the commodity which keeps showing losses.
The above mentioned rules are general observations and are in no way A GUIDE to PERFECT TRADING. You must pay attention to the forces of market and make decisions accordingly.